22 lines
1.9 KiB
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22 lines
1.9 KiB
Plaintext
39TYPES OF CHARTS
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FIGURE 4.6 W eekly Bar Chart Perspective: Coff ee Nearest Futures
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Chart created using TradeStation. ©TradeStation T echnologies, Inc. All rights reserved.
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■ Linked Contract Series: Nearest Futures versus
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Continuous Futures
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The time period covered by the typical weekly or monthly bar chart requires the use of a series of
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contracts. Normally, these contracts are combined using the nearest futures approach: a contract is
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plotted until its expiration and then the subsequent contract is plotted until its expiration, and so on.
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Traders should be aware that a nearest futures chart may refl ect signifi cant distortions due to the price
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gaps between the expiring month and the subsequent contract.
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Figure 4.7 provides two clear examples of this type of distortion. The top chart is a live cattle
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weekly nearest futures chart; the bottom chart is a live cattle weekly continuous futures chart, which
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will be defi ned momentarily. The nearest futures chart implies a large 7.175-cent (6 percent) one-
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week gain in the price of cattle from the August 31 close to the September 7, 2012 close. However,
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this price jump never really took place because the price gap represented nothing more than the expi-
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ration of the lower-priced August 2012 cattle contract and the switch to the higher-priced October
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2012 cattle contract. In contrast, the continuous futures chart, which, as will be explained shortly,
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refl ects actual price movements, showed that price had rallied only 0.45 cents from August 31 to
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September 7, 2012. Almost exactly a year later the same relationship between the prices in diff erent
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contract months produced an even more noteworthy discrepancy: While the nearest futures chart
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showed a 3.15-cent gain from August 30 to September 6, 2013, the continuous futures chart shows
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cattle prices actually declined 1.125 cents between these dates. |